Ebay has suffered an embarrassing defeat at the hand of a French court which could have long term effects on the way the world's largest online auction company runs its business on a day to day business.

Ebay, which ironically was founded by French-Born Pierre Moidyar, has been ordered to pay more than GBP 30 million to European luxury giant LVMH, for selling fake merchandise; the court decision was immediately appealed by the online website.

In a situation that is reminiscent of the stuggle between Youtube and Movie studios, Ebay issued a statement saying that they scrap counterfeit goods as soon as they are found; but obviously there is no way of testing the millions of items on sale on the website without running the risk of alienating its customers.

Ebay has also been sued in a number of high profile cases by other luxury goods manufacturers like Tiffany, Hermes and Roles which accused the online auctioneer of not doing enough to stem the flood of counterfeit articles on sale on its website.

LVMH said that in 2006, 90 percent of Louis Vuitton and Dior perfumes, bags and watches on sale on Ebay were fakes; but Ebay has been particularly active in combating counterfeiting.

Since November 2007, 2.2 million listings have been removed from Ebay and 50,000 sellers suspended while putting limits on the number of items that could be sold by one seller at any time.

Crucially though, the French court decision means that Ebay could face more damaging lawsuits in Europe and in North America; this could undermine buyers confidence and shareholders' patience.